1 Glorious Growth Stock Down 33% to Buy Hand Over Fist, According to Wall Street

Core Viewpoint - Datadog's stock is currently trading 33% below its record level from 2021, but its rapid revenue growth, increasing profits, and expanding AI product portfolio make it an attractive investment opportunity [1]. Company Overview - Datadog's flagship cloud observability platform assists businesses in monitoring their digital infrastructure, allowing for early detection of technical issues [3]. - The company is expanding into new industries, particularly AI, with the launch of an observability tool for large language models [4]. - Datadog offers an AI-powered virtual assistant, Bits AI, which helps trace technical issues and generates incident summaries, enhancing operational efficiency [5]. Business Performance - As of the end of 2024, approximately 30,000 businesses were using Datadog, with 3,500 adopting at least one AI product, a significant increase from 2,000 at the beginning of the year [6][7]. - Datadog generated $738 million in revenue during Q4 2024, a 25% increase year-over-year, exceeding management's forecast of $711 million [8]. - AI customers contributed about 6% to the company's annual recurring revenue (ARR) in Q4 2024, doubling from 3% in Q4 2023, with total ARR reaching a record $3 billion [9]. Profitability - Datadog's GAAP net income for 2024 was $183.7 million, a 278% increase from 2023 [10]. - On a non-GAAP basis, the company reported $653.8 million in net income for 2024, up 40.9% compared to 2023 [11]. Analyst Ratings - Among 46 analysts covering Datadog, 29 have assigned the highest buy rating, with no sell recommendations [2][12]. - The average price target for Datadog stock over the next 12 to 18 months is $161.74, indicating a potential upside of 26%, while the highest target suggests an 80% increase [13]. Valuation Metrics - Datadog's stock trades at a price-to-sales (P/S) ratio of 16.9, significantly lower than its long-term average of 28.9, although it is slightly more expensive than other cloud and AI software stocks [14][15]. - A 26% gain is considered a more realistic expectation for the next year, while an 80% gain would require substantial acceleration in revenue growth [16].